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Are you contemplating investing in real estate? However you don’t have enough cash to do so. In this article is a tip you may use as long as the property seller is willing to negotiate with you.
To be fair, not every seller will be willing (or even understand) the concept outlined. Your better guess is to find a property that the owner has great desire for selling, whether because of moving, a divorce settlement, or they are frustrated with the people renting the place.
Actually, if you are currently renting and thinking of using this approach perhaps your landlord would be glad to assist you! There are a few variations that may be used depending on you and your owner. Do they want the market price or are they just eager to get out of the monthly payments – maybe facing foreclosure?
The simplest way is to consider taking over their mortgage obligations – called ‘assuming’ the mortgage. You will need to be approved by the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you could as well try a ‘subject to’ assumption where you merely make obligations while the property stays in the seller’s name.
You take over the first mortgage and get a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or three years. Instead of having the money stay in a bank they can be collecting a high interest over two or three years with the remainder due in full at the end of the investment term.
When the term ceases you need to be able to refinance the cost, or you could sell. Unless you hit a genuine bad market the value of the property should have risen by then.
A lot of mortgage lenders merely need to make a good investment. While your local bank may still be lacking confidence there are plenty of financial lenders that would like to make a deal. Financiers prefare real estate. The mortgage is usually around 60-70% of the value of the property, so as long as they understand they get their money back in the value of the property if you default, they do not care what kind of revenue you make. Conclude the deal with a 2nd mortgage done with the seller. In case you default they can eventually foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
Now you can observe the whole picture. It is good that seller and buyer can work together. In the event that they can’t wait for a sale, you can still give them their initial price with a little overall flexibility on their part.